Last week’s signing of the Memorandum of Understanding (MOU) between Alberta and Ottawa represents an important shift in Canadian energy policy. Both parties share the same goal of Canada being an energy superpower, and the MOU offers a path forward.

To get to this destination, the federal government says it will drop some regulatory constraints, while Alberta is committing to a higher industrial carbon price of $130/tonne, carbon capture and storage (CCS), and net zero by 2050 targets. The federal budget shows that Canada has below average oil and gas emissions intensity relative to global peers, and the goal is to improve on that performance. Indigenous economic partnerships are another key component of the MOU.

This is only a blueprint, and there is still more work ahead to advance nation-building projects. April 1, 2026 is a key date on the industrial carbon price, methane equivalency and the Pathways Alliance CCS agreement. A west coast pipeline project needs to be submitted to the federal Major Projects Office by July 1.

In this Twenty-Four, we consider how the oil and gas components of this MOU fit into the broader economic picture for Canada and the federal government’s economic goals set forward by PM Mark Carney, including: 

• Doubling non-U.S. exports over the next decade
• Making Canada the world’s leading energy superpower
• Enabling $1 trillion in investment in next five years 
• Making Canada the strongest economy in the G7

The perils of relying on a single export market

Until recently, Canada has been selling its oil and gas almost exclusively to one international market - the U.S. This lack of export diversification makes Canada’s economy subject to market concentrated risks, and severely limited international growth opportunities.

It has also resulted in Canadian oil and gas trading at significant, and volatile, discounts to international prices.

The late 2010s serve as an important case study of concentration risk. A lack of pipeline access in North America led to record wide discounts on Canadian heavy oil (Western Canada Select) relative to the light N. American benchmark (West Texas Intermediate) with the gap approaching a monthly average of nearly $45/bbl in October 2018. There was no escape valve to less congested overseas markets.

The situation became so dire that the Alberta government intervened, requiring companies to curtail their output. The result of insufficient market access was billions in lost revenue for Canada’s economy.

More recent protectionist measures by the U.S. administration further highlights Canada’s vulnerability to country-specific risks.

As energy expert Peter Tertzakian argues, Canada cannot realize its energy superpower ambitions without more clout on the international stage.  

Asian market opens to Canada - The hockey stick charts

The good news is that the last two years have brought a structural shift in the Canadian energy landscape. Canada has made significant progress exporting its energy outside the U.S., namely to Asia.

How did this happen? There were three major developments, all involving new export infrastructure:

Crude oil via Trans Mountain Expansion (TMX) project - In May 2024, the TMX entered commercial operations, leading to a surge in crude oil exports to Asia. Crude oil flows to Asia went from zero prior to TMX to about $600 million per month since June 2024.

With new egress and demand from China the light-heavy differential has narrowed to an average of only US$12/bbl since the TMX came, as the pipeline accommodated rising oil sands production.  

Propane via Ridley Island - With the construction of the Ridley Island Propane Export Terminal in 2019, Canada has significantly increased its role in exporting to Korea and Japan. In fact, Canada has become Japan’s second largest source of propane since 2020. Liquified petroleum gas shipments to Asia are set to increase further with the Ridley Island Export Facility under construction.  

Progress, but still a drop in the barrel

All this moves the overseas needle, but it’s still a relatively small amount.

As of August (latest available), nearly 10% of oil and gas industry exports were destined for non-U.S. markets. While that’s an improvement from less than 2% prior to TMX, U.S. concentration remains high. These shares are slightly higher when including a broader basket of energy products (e.g. refined petroleum products, coal and electricity), but the overseas component is still small (see chart below).

As for PM Carney’s export target, it’s easier to leap over a low bar. Energy is Canada’s largest export (see chart). But with its low starting point of overseas exports, it can play an outsized role in doubling Canada’s total non-U.S. exports.   

Bringing investment back to Canada

In addition to overseas export ambitions, it’s also tough to see how PM Carney can hit his goal of enabling $1 trillion in investment and driving the fastest growth in the G7 without a major contribution from the energy sector.   

As we have long maintained, Canada has an investment problem, not so much a GDP per capita problem. This is something that needs to turn around, and soon. Canada cannot rely on consumption and government spending to fuel the next leg of growth, as it did in the previous decade. The energy sector is the largest single contributor to Canada’s private investment and can play a key role. That said, as the federal budget 2025 clearly showed, investment weakness is broad-based across sectors (not just oil and gas), and extends to intellectual property, machinery and equipment, and research and development. Improving competitiveness and project execution speed remains critical across all sectors.  

Bottom Line

Last week’s Energy MOU reflects, in no small part, the ambitious economic goals set by the federal government. It also reflects the economic realities of sustained weakness in investment and productivity in the country.

Enabling $1 trillion in investment, doubling non-U.S. exports, and becoming the strongest G7 economy will require a substantial contribution from Canada’s energy sector.

Answer to the previous trivia question: The world's largest LNG export facility is the Sabine Pass LNG terminal in Louisiana.

Today’s trivia question: True or false? Venezuela is a founding member of the Organization of the Petroleum Exporting Countries (OPEC).